Deductible gift
recipients

Schedule 1 to this
Bill amends the Income Tax
Assessment Act 1997 to update the list of deductible
gift recipients (DGRs) to make two entities DGRs, and change the
name of another entity.

Date of
effect : For the Charlie Perkins
Trust for Children & Students, and the Roberta Sykes Indigenous
Education Foundation the amendments apply to gifts made after
2 August 2010. The name change to Girl Guides Australia
applies from 1 January 2011.

Proposal
announced : The listing of Charlie
Perkins Trust for Children & Students, and the Roberta Sykes
Indigenous Education Foundation as DGRs was announced in the
2010-11 Mid-Year Economic and Fiscal Outlook.

Financial
impact : This measure will have the
following revenue implications:

Schedule 2 to this Bill amends the
Superannuation Industry
(Supervision) Act 1993 (SIS Act) to permit the
regulations to impose rules on self managed superannuation fund
(SMSF) trustees that make, hold or realise investments involving
collectables or personal use assets. These amendments apply
in relation to investments made by an SMSF before, on or after
1 July 2011. The regulations may specify that the
amendments apply to only some of these investments. The
regulations may prescribe penalties for non-compliance with the
rules set out in the regulations, not exceeding
10 penalty units.

This Schedule also
amends the SIS Act to remove a reference to a provision that was
repealed on 24 September 2007.

Date of
effect : 1 July 2011.

Proposal
announced : This proposal was
announced as a Government election commitment and titled
‘ New Standards for Storing
Collectables and Personal Use Assets Held by Self Managed
Superannuation Funds ’ on 30 July
2010.

Date of
effect : 1 July 2011 for the
amendments to use TFNs to locate accounts, and 1 January 2012 or a
date to be proclaimed for the consolidation amendments.

Proposal
announced : This measure was announced in the
Assistant Treasurer and Minister for Financial Services and
Superannuation’s Media Release No. 024 of 16 December
2010.

Financial
impact : Nil.

Compliance cost
impact : Low.

Exempting Australian taxes, fees and charges
from the goods and services tax

Schedule 4 to this
Bill amends:

â¢
the A New Tax System (Goods and
Services Tax) Act 1999 (GST Act) to replace the current
mechanism for ensuring Australian taxes, and certain Australian
fees and charges are not subject to the goods and services tax with
specific legislative exemptions;

â¢
the GST Act to allow for the making of regulations to treat
an Australian tax, or an Australian fee or charge in a
particular way; and

â¢
the A New Tax System (Luxury Car
Tax) Act 1999 to account for changes being made to the
GST Act.

Date of
effect : These amendments apply
from 1 July 2011.

Proposal
announced : This measure was announced
in the 2010-11 Budget.

Financial
impact : Nil.

Compliance cost
impact : These amendments are
expected to result in a low overall compliance cost impact,
comprised of a low implementation impact and a low decrease in
ongoing compliance.

Miscellaneous amendments

Schedule 5 to this
Bill makes technical corrections and other minor and miscellaneous
amendments to the taxation laws. These amendments are part of
the Government’s commitment to the care and maintenance of
the tax system.

Date of
effect : These amendments commence
from Royal Assent unless otherwise stated in this explanatory
memorandum.

Proposal
announced : These amendments were all
foreshadowed by their release in draft form on the Treasury website
on 28 January 2011.

Financial
impact : The amendment to allow the
nomination of controllers of discretionary trusts for the purposes
of capital gains tax small business concessions (Part 19,
comprising items 91 to 105) is expected to result in a small cost
to revenue (with an upper bound of $10 million per annum).

The other
amendments are expected to have nil to minimal revenue
impacts.

Outline of chapter

1.1
Schedule 1 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to update the list of deductible gift recipients (DGRs)
by changing the name of one entity and making two entities
deductible gift recipients.

Context of amendments

1.2
The income tax law allows taxpayers who make gifts of $2 or more to
DGRs to claim income tax deductions. To be a DGR, an
organisation must fall within one of the general categories set out
in Division 30 of the ITAA 1997, or be listed by name in that
Division.

1.3
DGR status assists eligible funds and organisations to attract
public support for their activities.

Summary of new law

1.4
These amendments add the Charlie Perkins Trust for Children &
Students, and the Roberta Sykes Indigenous Education Foundation to
the list of specifically listed DGRs, and change the name of a
currently listed DGR from ‘Guides Australia
Incorporated’ to ‘Girl Guides Australia’.

Detailed explanation of new
law

1.5
Schedule 1 allows taxpayers to claim a deduction for gifts made to
the Charlie Perkins Trust for Children & Students after 2
August 2010 and before 2 August 2013. [Schedule 1, item 4, item 2.2.39 in the table in
subsection 30-25(2)]

1.6
The purpose of the Charlie Perkins Trust for Children &
Students is to advance the education of Aboriginal and Torres
Strait Islander people through the provision of scholarships to
Indigenous Australians for study at overseas institutions, such as
Oxford and Cambridge University.

1.7
It is a condition of the listing that the fund meets the
requirements of the scholarship general DGR category, except for
the provisions requiring that it must be provided by an Australian
higher education provider and not target a predetermined section of
the community. Also, as a condition of listing, that the
Australian Educational International (AEI) raise no objections to
the institutions to which the scholarship fund seeks to send
scholars, and that the fund advise the Australian Government
annually on those institutions to which scholars have been sent in
a given year.

Roberta Sykes Indigenous Education Foundation
(ABN 99 950 620 671)

1.8
This Schedule allows taxpayers to claim a deduction for gifts made
to the Roberta Sykes Indigenous Education Foundation after
2 August 2010 and before 2 August 2013. [Schedule 1, item 4, item 2.2.40 in the
table in subsection
30-25(2)]

1.9
The Roberta Sykes Indigenous Education Foundation works to advance
the education and life opportunities for Aboriginal and Torres
Strait Islanders, and provides additional assistance to female
Indigenous scholars undertaking programs overseas, such as
assisting with the cost of relocating families and
partners.

1.10
It is a condition of the listing that the fund meets the
requirements of the scholarship general DGR category, except for
the provisions requiring that it must be provided by an Australian
higher education provider and not target a predetermined section of
the community. Also, as a condition of listing, that the AEI
raise no objections to the institutions to which the scholarship
fund seeks to send scholars, and that the fund advise the
Australian Government annually on those institutions to which
scholars have been sent in a given year.

Girl Guides Australia
(ABN 62 477 364 942)

1.11
This Schedule also changes the name of ‘Guides Australia
Incorporated’ to ‘Girl Guides Australia’.
[Schedule 1, items 1 and 2,
items 10.2.2 and 10.2.3 in the table in section
30-90]

1.12
The purpose and operation of the organisation has not changed.

Consequential amendments

1.13
Changes have been made to update the index in Division 30 of the
ITAA 1997 to add Charlie Perkins Trust for Children & Students
and the Roberta Sykes Indigenous Education Foundation.
[Schedule 1, items 5 and 6, items 30A and
97AA in the table in section
30-315] .

1.14
Changes have been made to update the index in Division 30 to
reflect the change in name to Girl Guides Australia.
[Schedule 1, item 3, item 53A in the table
in section 30-315]

2.2
Schedule 2 also amends the SIS Act to remove a reference to a
provision that was repealed on 24 September 2007.

2.3
This measure will have effect from 1 July 2011.

2.4
All legislative references in this chapter are to the SIS Act
unless otherwise stated.

Context of amendments

2.5
Superannuation funds, including SMSFs, are generally free to invest
in any asset they choose. However, taxation concessions are
provided to superannuation savings with the objective of providing
individuals with better income in retirement. Consequently,
there are some rules on superannuation investments. The aim
of these rules is to ensure that superannuation savings are
accumulated for retirement income purposes, not current day benefit
or estate planning.

2.6
These rules include that investments must be consistent with the
sole purpose test in section 62 of the SIS Act, which, broadly,
requires that superannuation funds must be maintained for the sole
purpose of providing retirement income to members or, in the event
of a member’s death, to the member’s dependants or
legal personal representative. Although the sole purpose test
covers all operations of the fund, in terms of investment this
means that investments must be made solely for retirement income
purposes.

2.7
In May 2009, the Government announced a review into the governance,
efficiency, structure and operation of Australia’s
superannuation system. The Super System Review had the goal
of ensuring that the superannuation system operates in the most
cost effective manner and in the best interests of all its
members.

2.8
The Super System Review’s final report was released on
5 July 2010. The report made a number of
recommendations regarding SMSFs, one of which was that SMSF
investment in collectables and personal use assets should be
prohibited and that existing SMSF holdings of these assets should
be disposed of within five years.

2.9
The Super System Review panel found that investments in
collectables and personal use assets pose issues in relation to the
application of the sole purpose test. They argued that these
investments lend themselves to personal enjoyment and therefore can
involve current day benefits being derived by those using or
accessing the assets. The panel argued that these assets
should not be regarded as investments that build retirement savings
and consequently should not be available to SMSFs.

2.10
An SMSF is a superannuation entity that has less than five members,
all of whom are trustees of the fund or directors of the corporate
trustee. A key characteristic of an SMSF is that all members
are involved in the decision-making process and control the
management of the fund.

2.11
SMSFs are subject to compliance-based regulation by the Australian
Taxation Office (ATO), unlike most other superannuation funds which
are subject to prudential regulation by the Australian Prudential
Regulation Authority (APRA). SMSFs are subject to a less
onerous prudential regime than APRA-regulated entities on the basis
that all members of SMSFs are in a position to protect their own
interests.

2.12
Given the closely-held nature of SMSFs, members have direct control
over the investment of their superannuation savings and have the
capacity to invest their money for their own current day
benefit. The same risk does not exist in APRA-regulated
funds, because the members in these funds have minimal control over
investment decisions and are unlikely to receive any current day
benefit from an investment.

2.13
It is extremely difficult for the ATO to determine the true purpose
for which an investment in a collectable or personal use asset is
made, particularly where the asset is ‘stored’ in
premises owned by the SMSF trustee. As such, there are
insufficient regulatory tools available to prevent SMSF investment
in collectables and personal use assets giving rise to current day
benefits for SMSF members.

2.14
On 30 July 2010, the Government announced, as an election
commitment, that it does not support the Super System Review
recommendation to prohibit SMSF investment in collectables and
personal use assets, in recognition that collectables can be a
legitimate investment for some SMSF trustees. However, the
Government also announced that it would tighten the legislative
standards applying to SMSF investment in collectables and personal
use assets to ensure that such investments do not give rise to
current day benefit for SMSF trustees.

Summary of new law

2.15
Schedule 2 amends the SIS Act to permit the regulations to impose
rules on SMSF trustees that make, hold or realise investments
involving collectables or personal use assets. Assets
considered to be collectables and personal use assets are listed in
the provisions.

2.16
This Schedule also amends the SIS Act to remove a reference to a
provision that was repealed on 24 September 2007.

Comparison of key
features of new law and current law

New
law

Current law

SMSF trustees must comply with any rules set by
the regulations in relation to investments in collectables and
personal use assets, in addition to the rules that also apply to
other asset classes.

SMSF trustees must comply with legislative rules
which apply to all SMSF investments.

There is no reference to subsection 376(6)
in paragraph 353(1)(d).

There is a reference to subsection 376(6)
in paragraph 353(1)(d).

Detailed explanation of new
law

2.17
Currently, SMSF trustees may invest in a broad range of assets,
provided the investments are permitted by the fund’s trust
deed and are in accordance with its investment strategy. The
trustees must also comply with legislative rules, regardless of the
asset class in which they invest. These amendments to the SIS
Act provide for specific legislative rules to be applied solely to
SMSF investments involving collectables and personal use
assets.

2.18
Part 7 of the SIS Act sets out rules that apply only to regulated
superannuation funds.

2.19
A new section is inserted into Part 7 to allow the regulations to
prescribe rules that specifically relate to investments by an SMSF
involving assets that are:

â¢
artwork (within the meaning of the Income Tax Assessment Act 1997 );

â¢
jewellery;

â¢
antiques;

â¢
artefacts;

â¢
coins or medallions;

â¢
postage stamps or first day covers;

â¢
rare folios, manuscripts or books;

â¢
memorabilia;

â¢
wine;

â¢
cars;

â¢
recreational boats;

â¢
memberships of sporting or social clubs; or

â¢
assets of a particular kind, if assets of that kind are ordinarily
used or kept mainly for personal use or enjoyment (not including
land).

[Schedule 2, item
1, section 62A]

2.20
This measure applies not only where the asset is the primary
investment but also where the asset is attached to an investment or
is a related benefit of an investment.

Example
2.1

Jemma is
a trustee of an SMSF. As trustee of her SMSF, Jemma makes an
investment in XYZ Golf Club. By making the investment, Jemma
receives a complimentary membership. Although the membership
is not the primary investment, Jemma must comply with regulations
made for the purpose of section 62A of the SIS Act in relation to
the membership.

2.22
Section 62A does not override section 62 of the SIS Act, which sets
out the sole purpose test. Investments to which this measure
applies need to comply with both section 62 and section
62A.

2.23
The rules that the regulations may prescribe can relate to the
making, holding and realising an investment. In other words,
the rules may be in relation to how the asset is acquired, stored
and used while in the SMSF, and disposed of. [Schedule 2, item 1, section
62A]

2.24
The regulations may prescribe penalties for non-compliance with the
rules set out in the regulations. The penalties cannot exceed
10 penalty units. This is consistent with paragraph
353(1)(d) of the SIS Act, which provides that the regulations
may prescribe penalties not exceeding 10 penalty units in respect
of offences against the regulations. [Schedule 2, item 1, section 62A,
note]

2.25
Matters relating to offences against the rules will be set out in
the regulations. Including the offence with the rules will
ensure transparency and simplicity, and will assist with
interpretation.

Application provisions

2.27
These amendments apply in relation to investments made by an SMSF
before, on or after 1 July 2011. [Schedule 2, item
3]

2.28
The regulations may specify that the amendments apply to only some
of these investments. This will allow the five-year
transitional period, announced by the Government as part of its
election commitment, to be included in the regulations.
[Schedule 2, item
3]

Context of amendments

Current law

3.2
A TFN is a unique number issued by the Australian Taxation Office
(ATO) for each taxpayer, which allows the ATO to match details of
income disclosed in a taxpayer’s return with details of a
person’s income received from other sources. TFNs are
used by the ATO as a primary identifier of an individual for the
purposes of the administration of taxation and superannuation laws
administered by the Commissioner of Taxation (Commissioner).

3.3
There are current laws which allow use of TFNs in the
superannuation industry. These laws apply to trustees of
regulated superannuation funds, approved deposit funds, RSAs,
exempt public sector superannuation schemes, and
employers.

3.4
The collection of TFNs by superannuation funds is authorised under
Part 25A of the SIS Act. This Act provides clear limitations
on the use of TFNs and also outlines details of the recording and
destruction of TFN records.

3.5
If the superannuation fund trustee or RSA provider is not provided
with a member’s TFN for superannuation purposes, the
superannuation fund trustee or RSA provider is required to seek the
member’s TFN within 30 days of the person becoming a fund
member. However, it is not compulsory for the member to quote
their TFN.

3.6
However, where a TFN is not provided, member contributions may not
be accepted, and there may be adverse taxation consequences.
For example, if a TFN is not quoted and the fund receives employer
contributions for that member, additional income tax is payable by
the fund which will generally reduce the member’s benefit in
the fund.

3.7
Superannuation fund trustees and RSA providers currently use TFNs
primarily for the purpose of calculating the amount of tax which
will be deducted from the member’s benefit when paid.
In most cases, where a TFN is quoted, tax will be deducted at
normal, concessional rates.

3.8
Currently, TFNs may only be used by a superannuation fund trustee
or RSA provider to locate, in the fund’s records, member
accounts provided other methods are used first and only if the
other methods are insufficient. It is an offence for the
superannuation fund trustee or RSA provider to contravene this part
of the Act.

3.9
Superannuation fund trustees and RSA providers are not currently
permitted to use TFNs for the purpose of locating multiple accounts
held by the same person in order to consolidate the accounts,
whether in the same superannuation fund, RSA, or across multiple
superannuation funds.

3.10
TFN use by superannuation funds is governed by the Privacy Act 1988 and the
Taxation Administration Act
1953 (TAA 1953) to ensure member privacy is protected
and to prevent unauthorised use of TFNs.

Summary of new law

3.11
Schedule 3 amends the SIS Act and the RSA Act to allow
superannuation fund trustees and RSA providers respectively to use
TFNs to locate member accounts and to facilitate the consolidation
of multiple accounts held by the same person.

3.12 This measure was announced in
the Assistant Treasurer and Minister for Financial Services and
Superannuation’s Media Release No. 024 of 16 December
2010.

Comparison of key
features of new law and current law

New
law

Current law

TFNs may be used by superannuation fund trustees
and RSA providers to locate member
accounts.

TFNs may only
be used by a superannuation fund trustee or RSA provider to locate,
in the fund’s or provider’s records, member accounts
provided other methods are used first and only if the other methods
are insufficient or to confirm the identification of amounts
resulting from the use of the other
information.

TFNs
may be used by superannuation fund trustees and RSA providers to
facilitate account consolidation

TFNs cannot be
used by the superannuation fund trustee or RSA provider in the
first instance for account consolidation
purposes.

Detailed explanation of new
law

3.13
These amendments will allow superannuation fund trustees and RSA
providers to use TFNs to locate member accounts. [Schedule 3, item 2, section 137A of the RSA
Act; item 12, section 299LA of the SIS
Act]

3.14
The new laws will cover TFNs regardless of whether they are
provided to the superannuation fund by the member, the
member’s employer or the Commissioner in accordance with the
SIS Act and the RSA Act provisions.

3.15
The new law does not impose any compulsory obligations on
superannuation fund trustees and RSA providers.

3.16
The new law will allow superannuation fund trustees and RSA
providers to use TFNs to locate a member’s account
details. However the law will not allow the fund to use TFNs
to replace their existing account numbers. The aim of the law
is to remove the impediment for funds to use other search methods
before TFNs are used. It will not replace existing account
identification methods (such as account or membership
numbers). This ensures that the amendment operates in
accordance with National Privacy Principle 7. [Schedule 3, item 2, subsection 137A(3) of
the RSA Act; item 12, subsection 299LA(3) of the SIS
Act]

3.17
These amendments will also allow superannuation fund trustees and
RSA providers to use TFNs to facilitate the consolidation of
multiple accounts held by the same person in the same
superannuation fund and across multiple superannuation funds,
provided the requirements of the regulations are met (see paragraph
3.24). [Schedule 3, item 2,
subsection 137A(2) of the RSA Act; item 12, subsection
299LA(2) of the SIS Act]

Example
3.1 : Consolidation within a fund

Rhonda is not
aware she has two superannuation accounts with Fund A.
Fund A is permitted to match Rhonda’s TFN and consolidate the
two accounts provided the conditions in the regulations are
met. The regulations, may for example, provide conditions
relating to member consent and other procedures that superannuation
fund trustees must follow before consolidating
accounts.

Example
3.2 : Consolidation between funds

Stephen holds a
superannuation account with Fund A and suspects he may hold an
account in Fund B. The regulations may provide conditions
relating to member consent and other procedures that superannuation
fund trustees must follow before consolidating
accounts. Provided Stephen consents to the
consolidation and the other conditions in the regulations are met,
the fund may use the TFN to facilitate the consolidation of the
accounts.

3.18
All of these amendments will apply to eligible superannuation
entities, regulated exempt public sector superannuation schemes (as
defined under section 299W of the SIS Act), and RSAs.

Safeguarding member
privacy

3.19
This Schedule will not alter an individual’s right to choose
not to quote their TFN and there will not be additional
consequences for not quoting a TFN. However, the current
consequences for failing to quote a TFN will remain.

Example
3.3 : Non-quotation of a TFN

Vincci has not
quoted her TFN to her superannuation fund. In accordance with
the conditions in the regulations, her fund has advised that it
will match TFNs in its records to locate multiple accounts.
The fund provides Vincci the opportunity to provide her TFN before
the matching occurs, however Vincci decides not to quote her
TFN. As her fund does not have her TFN in relation to this
account, the fund will not be able to match any additional accounts
she may have using this method. In addition, her fund may be
liable for extra income tax on no-TFN contributions made for her
which it may deduct from her account. Further, her fund will
not be able to accept member contributions from
her.

3.20
Sections 8WA and 8WB of the existing TAA 1953 will
provide for a penalty for the unauthorised use or recording of
TFNs. The penalty is currently 100 penalty units (currently
$11,000), or imprisonment for two years, or both.
[Schedule 3, items 2 and 16, note in subsection
137A(2) of the RSA Act; items 12 and 17, note in subsection
299LA(2) of the SIS Act]

3.21
Binding TFN Guidelines, issued under section 17 of the
Privacy Act 1988 ,
protect the privacy of natural persons by regulating the
collection, storage, use, disclosure, security and disposal of TFN
information. In addition, the National Privacy Principles,
contained in Schedule 3 to the Privacy Act 1988 , govern the
collection, use and disclosure of personal information and the use
of agency identifiers.

3.22
TFN Guideline 1.1 states that ‘The TFN is not to be used as a
national identification system by whatever means.’
Guideline 1.2 states that ‘The rights of individuals under
taxation, assistance agency or superannuation law to choose not to
quote a TFN shall be respected.’

3.23
These amendments are consistent with the Privacy Act 1988 , the National
Privacy Principles and the TFN Guidelines. The reasons
include:

â¢
superannuation funds will not be able to use TFNs to replace member
account numbers;

â¢
use of TFNs for the purposes outlined in the legislation is a
limited extension of the current TFN use rather than a new
application;

â¢
the increased use of TFNs has been authorised by amending the
superannuation law as referenced under the TFN Guidelines;

â¢
the increased use of TFNs will be safeguarded by regulations that
ensure member identity is protected and member consent is obtained
where appropriate;

â¢
the law does not alter an individual’s right to choose not to
quote a TFN; and

â¢
superannuation funds are not obliged to increase their TFN use.

Regulation changes

3.24
In addition to the legislation, regulations will also be made to
specify additional requirements that must be met. In relation
to account consolidation, these will cover requirements for member
consent and other procedures that superannuation fund trustees and
RSA providers must follow before consolidating accounts.
[Schedule 3, items 2 and 16, subsection 137A(2)
of the RSA Act; items 12 and 17, subsection 299LA(2) of the
SIS Act]

3.25
The details of these regulations will be finalised following
consultation with relevant stakeholders.

Application and transitional
provisions

3.26
The amendments relating to account location will apply from
1 July 2011. The amendments relating to consolidation
will apply from 1 January 2012 or a date as proclaimed and
both amendments will apply to the use of TFNs on or after
commencement whether the TFN was quoted before, on or after the
commencement of this Schedule. [Schedule 3, items 13 and
18]

3.27
The proclamation provision has been included to allow time for
consultation on the regulations relating to the legislation.
The regulations will contain necessary safeguards and processes and
it is important that industry is given sufficient time to consider
these changes. Given the importance of these regulations, the
Government has included a proclamation provision to ensure that the
legislation and the accompanying regulations commence operation as
close to the same time as possible.

3.28
Transitional provisions relating to the regulations are included to
ensure that any regulations which were made under Schedule 3, Part
1 continue to have effect when Schedule 3, Part 2 repeals and
replaces the relevant provisions. [Schedule 3, item
19]

3.29
Safeguards are in place to ensure that fund members and RSA holders
who have previously provided a TFN are not disadvantaged by the
change, including strong penalties for the misuse of TFNs. In
addition, superannuation providers are not obliged to increase
their use of TFNs and members can still decide not to provide their
TFN to their superannuation provider.

Consequential amendments

3.30
Several amendments are required to repeal the previous TFN
provisions. [Schedule 3, item 1, subsections
137(4) and (5) of the RSA Act; items 3, 6, 8 and 10, subsections
299H(4) and (5), 299J(4) and (5), 299K(4) and (5) and 299L(4) and
(5) of the SIS Act]

3.31
Several amendments are required to remove references to the
previous uses of TFNs from the applicable offences and strict
liability sections of the SIS Act. [Schedule 3, items 4, 5, 7, 9 and 11,
subsections 299H(6) and (7), 299J(6) and (7), 299K(6) and (7),
299L(6) and (7) of the SIS Act]

3.32
The definitions of ‘eligible superannuation entity’ and
‘regulated exempt public sector superannuation scheme’
are added to the RSA Act. [Schedule 3, items 14 and 15, section 16 of the
RSA Act]

Outline of chapter

4.1
Schedule 4 to this Bill amends:

â¢
the A New Tax System (Goods and
Services Tax) Act 1999 (GST Act) to replace the current
mechanism for ensuring Australian taxes, and certain Australian
fees and charges are not subject to the goods and services tax
(GST) with specific legislative exemptions;

â¢
the GST Act to allow for the making of regulations to treat
an Australian tax, or an Australian fee or charge to be
treated in a particular way; and

â¢
the A New Tax System (Luxury Car
Tax) Act 1999 to account for changes being made to the
GST Act.

Context of amendments

4.2
This Schedule implements the Government’s decision to replace
the current mechanism for ensuring Australian taxes, fees and
charges are not subject to GST with a ‘self assessment’
mechanism, announced in the 2010-11 Budget on 11 May 2010.

4.3
The GST Act operates by treating a payment, or the discharging of a
liability to make such a payment, of any Australian tax, fee or
charge (other than GST) to be consideration for a supply that the
Australian government agency makes to the payer in return for that
payment (subsection 81-5(1) of the GST Act). This ensures
that all Australian taxes, fees and charges are potentially subject
to GST regardless of whether they are connected with a supply under
the GST basic rules.

4.4
However, the GST Act then allows the Commonwealth Treasurer to
specify by legislative instrument (a Determination), that the
payment, or discharging of the liability to make such a payment, of
any Australian tax, fee or charge is not the provision of
consideration (subsection 81-5(2) of the GST Act). The effect
of this is that taxes, fees and charges included in the
Determination are not consideration for a taxable supply and
therefore not subject to GST.

4.5
The Determination is updated twice a year in accordance with an
administrative process that involves the agreement of the GST
Administration Sub-Committee of the Ministerial Council for Federal
Financial Relations and the formal agreement of the state and
territory Treasurers. The Determination is registered as a
legislative instrument and is subject to scrutiny by the Senate
Regulations and Ordinances Committee.

4.6
When the GST was introduced, the Commonwealth, states and
territories agreed that the GST would apply to the commercial
activities of government at all levels and that the non-commercial
activities of government would be outside the scope of the
GST.

4.7
Accordingly, under the Intergovernmental Agreement on Federal
Financial Relations the parties agreed that Division 81
of the GST Act will exempt Australian taxes, fees and charges from
GST in accordance with the following principles:

â¢
taxes that are in the nature of a compulsory impost for general
purposes and compulsory charges by the way of fines or penalties
will be exempt from GST; and

â¢
regulatory charges that do not relate to particular goods or
services will be exempt from GST, including:

-
fees and charges levied on specific industries and used to finance
particular regulatory or other activities in the government sector;
and

-
licences, permits and certifications that are required by
government prior to undertaking a general activity.

4.8
The current Determination is the A New Tax System (Goods and
Services Tax) (Exempt taxes, fees and charges) Determination 2011
(No. 1).

4.9
The Determination has grown to over 680 pages and its making
involves a lengthy process that places an administrative burden on
all levels of government. This amendment will reduce
administrative costs by removing the need to list items in a
Determination and undertake a twice yearly exhaustive process of
updating the Determination. It will also provide increased
certainty by allowing government entities to treat eligible items
as exempt from the time that they are introduced rather than some
later time when they are listed in a Determination.

Summary of new law

Exempting Australian taxes or Australian fees
and charges from the GST

4.10
Schedule 4 repeals and replaces Division 81 of the GST Act to allow
entities to self assess the GST treatment of a payment of an
Australian tax or an Australian fee or charge in accordance with
certain principles. Under these amendments, government
agencies will no longer need to have an Australian tax or certain
categories of Australian fees or charges listed on the
Determination in order for those taxes, fees or charges to not be
subject to GST.

4.11
In addition, the amendments allow for regulations to be made to
treat an Australian tax, or any Australian fee or charge in a
particular way that will determine if the amount paid, or the
discharging of a liability to make such payment, is subject to
GST.

4.12
Those Australian taxes, fees and charges currently not subject to
GST under the A New Tax System
(Goods and Services Tax) (Exempt taxes, fees and charges)
Determination 2011 (No. 1) will remain not subject to
GST until 1 July 2012 and thereafter will be assessed
under the changes made in this Schedule.

4.13
The GST treatment of all new Australian taxes or Australian fees or
charges that are not currently entered on the A New Tax System (Goods and Services Tax)
(Exempt taxes, fees and charges) Determination 2011 (No.
1) will be self assessed under the changes made by this
Schedule with effect from 1 July 2011. Those Australian taxes
or Australian fees and charges that are not covered by the changes
made by this Schedule and meet the requirements of section 9-5 of
the GST Act will be taxable supplies, unless excluded by
regulation.

Comparison of key
features of new law and current law

New
law

Current law

The payment, or the discharging of a liability
to make such a payment, of an Australian tax is not treated as the
provision of consideration. Such a payment will not be
subject to GST. However, regulations can be made to treat the
payment of a tax, or of a kind of tax, as consideration for a
supply made by the entity to which the tax is payable, in which
case it will be subject to GST.

A payment, or the discharging of a liability to
make such a payment, of certain categories of Australian fees or
charges is not treated as the provision of consideration.
Such a payment will not be subject to GST. However,
regulations can be made to treat the payment of any Australian fee
or charge, or of a kind of payment, as consideration for a supply
made by the entity to which the fee or charge is payable, in which
case it may be subject to GST.

The payment, or the discharging of a liability
to make such a payment, of an Australian tax or an Australian fee
or charge that is not exempted by a specific provision within
Division 81, including by regulation made under that Division, may
be consideration for a taxable supply if the requirements of
section 9-5 of the GST Act are met.

Regulations that are made under Division 81 can
be expressed to take effect from a date before the regulations are
registered under the Legislative Instruments Act
2003 .

The payment of any Australian tax, fee or charge
is treated in the first instance as the provision of consideration
for a supply, which may be a taxable supply.

However, an Australian tax, fee or charge is not
treated as consideration for a supply if it is included in a
legislative instrument made by the Commonwealth Treasurer, in which
case it is not subject to GST.

The fact that a supply is not connected with
Australia does not stop the supply being a taxable supply in
connection with the payment of an Australian tax, fee or
charge.

Detailed explanation of new
law

4.14
Schedule 4 repeals and replaces Division 81 of the GST Act to allow
government agencies to self assess the GST treatment of any
Australian tax or any Australian fee or charge imposed under an
Australian law and payable to the agency, in accordance with
certain principles.

4.15
Under these amendments, an ‘Australian tax’ or an
‘Australian fee or charge’ (as defined in the GST Act)
will no longer be treated as the provision of consideration for a
supply at first instance. Government agencies will no longer
need to have an Australian tax, fee or charge listed on a
Determination made by the Commonwealth Treasurer as a prerequisite
for it not to be subject to GST.

4.16
Under these amendments, the payment of an Australian tax will not
be treated as the provision of consideration and therefore any
supply to which it relates will not attract GST. Furthermore,
an Australian fee or charge of a kind to which subsections 81-10(4)
and (5) apply will not be treated as the provision of consideration
(for a supply) and also will not attract GST.

4.17
However, a regulation can be made with the effect of treating
payments, or the discharging of a liability to make such payments,
of an Australian tax or of an Australian fee or charge, as the
provision of consideration for a supply. The GST treatment of
the supply to which the tax, fee or charge relates may be a taxable
supply.

4.18
The changes also provide for the making of regulations, where
necessary, that will allow for the payment of an Australian fee or
charge, or the discharging of a liability to make such a payment,
to not be the provision of consideration and therefore any supply
to which it relates will not be subject to GST.

4.19
It is not intended that the payment of a fine or penalty imposed
under an Australian law and payable to an Australian government
agency be subject to GST. Application of the GST basic rules
should ensure that such payments are not subject to GST, therefore
they are not addressed by these amendments.

Australian taxes

4.20
Taxes are imposed as part of the general revenue raising activities
of government and should not be subject to GST. Generally,
taxes are not considered to be associated with a supply and are not
subject to GST under the GST basic rules. However, given the
expansive definition of ‘supply’ and
‘consideration’ contained within the GST Act, these
amendments ensure all payments of taxes imposed under an Australian
law will not be subject to GST at first instance.

4.21
The payment of an Australian tax, or the discharging of a liability
to make such a payment, will not be treated as the provision of
consideration (for any supply). Therefore, a supply (if any)
will not be a taxable supply as the supply has not been made for
consideration in accordance with paragraph 9-5(a) of the GST
Act. Consequently, an Australian tax, imposed under an
Australian law, will not attract GST. [Schedule 4, item 2,
subsection 81-5(1)]

4.22
Examples of Australian taxes imposed under an Australian law
include: income tax, stamp duty, fringe benefits tax, payroll
tax, the Medicare Levy, local government ‘ordinary
rates’ and various industry levies.

4.23
These amendments allow for a payment, or the discharging of a
liability to make such a payment, of an Australian tax, or of a
kind, that is not treated as the
provision of consideration under subsection 81-5(1) of
the GST Act, to be treated, by way of regulation, as the provision of consideration
to the entity to which the tax is payable for a supply made by that
entity to the payer. Therefore, the supply will be a taxable
supply if all of the requirements of section 9-5 of the GST Act are
satisfied . [Schedule 4, item 2,
subsections 81-5(2) and (3)]

4.24
The abovementioned regulation-making power allows for circumstances
where, for policy reasons, the Government considers that GST should
apply to a payment that falls within the definition of an
‘Australian tax’.

4.25
Any regulations would be made through procedures agreed to by the
Commonwealth and the states and territories, in accordance with the
A New Tax System (Managing
the GST Rate and Base) Act 1999 . The agreed
procedures involve consultation and agreement between the
Commonwealth and the states and territories on changes made to the
GST base, through the GST Administration Sub-Committee of the
Ministerial Council for Federal Financial Relations.
Following consultation, any proposed regulation would require the
unanimous agreement of the members of the Ministerial Council for
Federal Financial Relations.

Australian fees and
charges

4.26
These amendments ensure that a payment or the discharging of a
liability to make such a payment, for certain categories of
Australian fees or charges will not be treated as the provision of
consideration and therefore, any supply to which the payment
relates will not be subject to GST. A supply to which a
payment, or the discharging of a liability to make such a payment,
relates will not be subject to GST to the extent the payment is for
a fee or charge covered by subsection 81-10(1) of the
GST Act. For a supply to which a fee or charge relates
not to be subject to GST, the fee or charge must be imposed under
an Australian law and be payable to an Australian government
agency . [Schedule 4, item 2,
subsection 81-10(1)]

4.27
To the extent a payment, or the discharging of a liability to make
such a payment, is a payment or discharge of an Australian fee or
charge that relates to, or relates to the application for, the
provision, amendment or retention under an Australian law, of a
permission, exemption, authority or licence, it will not be treated
as the provision of consideration. Therefore, any supply to
which the fee or charge relates will not be subject to GST. A
fee or charge in relation to the provision, amendment or retention
of a permission, exemption, authority or licence (however
described) includes but is not limited to:

â¢
application fees, licences, permits and certifications that are
required by government prior to undertaking an occupation (for
example, medical and legal professionals’ right of practice
licences, pilots’ licences, heavy vehicle drivers’
licences and adjustments to such licences); and

â¢
regulatory charges imposed to undertake an activity (for example,
compulsory testing fees for regulatory purposes, compulsory
inspection fees for regulatory purposes, a permit for restaurants
to occupy the footpath, and a licence for an event to close
roads).

4.28
As noted, this exemption applies to an Australian fee or charge
imposed in relation to, or to the application for, the
retention of a
permission, exemption, authority or licence. An example of
such a fee would be a periodic compulsory inspection fee, made
under an Australian law and payable to an Australian government
agency, for the retention of a permit. In such cases, the
inspection fee is directly related to the retention of the
permission (the permit) and would not be subject to GST. In
cases where the inspection fee is payable to a private entity (not
an Australian government agency) then
subsection 81-10(4) of the GST Act will not apply and
the supply will be taxable provided it meets the requirements of
section 9-5 of the GST Act. [Schedule 4, item 2,
subsection 81-10(4)]

4.29
The payment of an Australian fee or charge, to an Australian
government agency, in relation to the lodgment of, or access to,
documents provided under an Australian law will not be treated as
the provision of consideration. Therefore, the supply to
which the fee or charge relates will not be subject to GST.
Examples of such fees and charges, payable to Australian government
agencies, are those that are paid in order to obtain information
from a government agency under relevant freedom of information
legislation, searches and extracts from registers, copies of
official documents, registration fees and lodgment fees for
property transfers, deeds, plans and instruments.

4.30
It is intended that consideration that is provided for commercial
sales of information supplied by Australian government agencies,
including supplies of books by a government bookshop, be subject to
GST at first instance. It is also intended that consideration
that is provided for supplies made under commercial arrangements,
including the hire of government assets (such as recreation halls,
office space, conference centres and equipment), be subject to GST
at first instance. [Schedule 4, item 2, subsection
81-10(5)]

4.31
These amendments allow for a payment, or discharging of a liability
to make such a payment, of any Australian fee or charge, or a fee
or charge of a specified kind, (including fees and charges that
have not been treated as the provision of consideration due to the
application of subsection 81-10(1)) to be treated, by way of
regulation, as the provision of consideration for a supply made by
the entity to which the fee or charge is payable. This supply
will be a taxable supply if the requirements of section 9-5 of the
GST Act are met. [Schedule 4, item 2, subsections 81-10(2)
and (3)]

4.32
The abovementioned regulation-making power allows for circumstances
where, for policy reasons, the Government considers that GST should
apply to the payment, or discharging of a liability to make such a
payment, of an Australian fee or charge.

4.33
These amendments allow for the payment of any Australian fee or
charge, or the discharging of a liability to make such a payment,
to be treated as not the
provision of consideration and therefore, any supply to
which the fee or charge relates will not be subject to GST.
This power is to apply in circumstances where an Australian fee or
charge is not otherwise covered by subsections 81-10(4) and (5) of
the GST Act, and for policy reasons, the Government considers that
GST should not apply. This will also assist with the
correcting of unintended consequences that may arise as a result of
the operation of the new provisions inserted by these
amendments. [Schedule 4, item 2,
section 81-15]

4.35
Any regulations would be made through procedures agreed to by the
Commonwealth and the states and territories, in accordance with the
A New Tax System (Managing
the GST Rate and Base) Act 1999 . The agreed
procedures involve consultation and agreement between the
Commonwealth and the states and territories on all changes made to
the GST base, through the GST Administration Sub-Committee of the
Ministerial Council for Federal Financial Relations.
Following consultation, any proposed regulation would require
the unanimous agreement of the members of the Ministerial Council
for Federal Financial Relations.

4.36
The changes also allow for a regulation that is made under these
amendments to be expressed as taking effect from a date before the
regulations are registered under the Legislative Instruments Act
2003 . This is despite the operation of subsection
12(2) of that Act which otherwise limits the commencement date of
regulations in certain circumstances. This would for
instance, allow for the desired GST treatment for a payment, or
discharging of the liability to make such a payment, to be achieved
where a new Australian tax or Australian fee or charge is imposed
under an Australian law before regulations can be made to provide
for the desired treatment. [Schedule 4, item 2, section
81-25]

Application and transitional
provisions

4.37
These amendments will apply in relation to Australian taxes or
Australian fees or charges that are imposed under an Australian law
on or after 1 July 2011.

4.38
However, under these amendments, the A New Tax System (Goods and Services
Tax)(Exempt taxes, fees and charges) Determination 2011 (No.
1) which lists all Australian taxes, fees and charges
that are not treated as consideration, and thus supplies to which
they relate are not subject to GST, is to be grandfathered for one
year. Thus, taxes, fees and charges that are imposed prior to
1 July 2012 and are currently listed in the Determination will not
‘be subject to GST’ for the transitional period (until
1 July 2012), after which any supplies to which they relate will be
assessed against the provisions set out in these amendments.
[Schedule 4, item
16]

4.39
This transitional arrangement will allow for Australian government
agencies to reconcile the current taxes, fees and charges listed in
the A New Tax System (Goods and
Services Tax)(Exempt taxes, fees and charges) Determination 2011
(No. 1) with these amendments.

4.40
Any taxes, fees or charges that are currently listed in the
A New Tax System (Goods and
Services Tax)(Exempt taxes, fees and charges) Determination 2011
(No. 1) that become subject to GST (in relation to a
supply) under these amendments will attract GST if they are imposed
under an Australian law on or after 1 July 2012 (provided
they satisfy the requirements of section 9-5 of the GST Act and are
not otherwise treated, by way of regulation, as not being subject
to GST).

Consequential amendments

4.41
As a consequence of the amendments under this Schedule 4:

â¢
Subsection 82-10(3) of the GST Act, which refers to the previous
subsection 81-5(1), is amended to refer to the new provisions
inserted by this Schedule [Schedule 4, item 3, subsection
82-10(3)] .

â¢
Subparagraph 117-5(1)(ba)(i) of the GST Act, which refers to the
previous subsection 81-5(2), is amended to refer to the new
provisions inserted by this Schedule [Schedule 4, item 4, subparagraph
117-5(1)(ba)(i)] .

â¢
The definition of ‘Australian tax, fee or charge’ has
been repealed from section 195-1 of the GST Act. Definitions
for ‘Australian tax’ and for ‘Australian fee and
charge’ have been inserted into section 195-1 of the GST Act
and references to the previous definition have been amended to
refer to the new definitions. Consequentially, previous
references to the former definition have been amended to make
reference to the new definitions in section 27-1, paragraph
5-20(1)(b) and paragraph 5-20(6)(b) of the
A New Tax System (Luxury Car
Tax) Act 1999 [Schedule 4, items 5 to 8, section 195-1, GST
Act; items 11 to 13, section 27-1,
paragraphs 5-20(1)(b) and 5-20(6)(b) of the A New Tax
System (Luxury Car Tax)
Act 1999] .

â¢
A reference to the previous provisions repealed by this Schedule in
section 195-1 (note at the end of the definition of ‘taxable
supply’) and in section 195-1 (note at the end of the
definition of ‘connected with Australia’) has been
removed [Schedule 4, item 10, section
195-1] .

â¢
A reference to the previous provisions repealed by this Schedule in
section 195-1 (note at the end of the definition of
‘consideration’) has been amended to refer to the new
provisions inserted by this Schedule [Schedule 4, item 9,
section 195-1] .

â¢ A reference to the previous
provisions repealed by this Schedule in subparagraph
13-20(2)(ba)(i) was amended to refer to the new provisions inserted
by this Schedule [Schedule 4, item 1, subparagraph
13-20(2)(ba)(i)] .

â¢ The note in the previous
section 81-1 has been amended to reflect the new provisions
inserted by this Schedule [Schedule 4, item 2, section
81-1] .

Outline of chapter

5.2
These amendments seek to ensure the taxation law operates as
intended by correcting technical or drafting defects, removing
anomalies, and addressing unintended outcomes. The
miscellaneous amendments are part of the Government’s
commitment to the care and maintenance of the taxation laws.

5.3
Miscellaneous amendment packages include addressing issues raised
through the Tax Issues Entry System (TIES). The TIES website
( www.ties.gov.au ), which the Australian Taxation Office
(ATO) and Treasury jointly operate, provides a way for tax
professionals and the general public to raise issues relating to
the care and maintenance of the tax system. The relevant
parts of the explanatory memorandum identify TIES issues.

â¢
ensuring that provisions are consistent with the original policy
intent; and

â¢
repealing inoperative provisions.

5.5
The table below lists the titles of the various parts of this
Schedule.

Part

Title

1

A New Tax System (Goods and
Services Tax) Act 1999

2

Approved worker
entitlement funds

3

Confidentiality of
taxpayer information

4

Employee share
schemes

5

General interest
charge

6

Deductible gift
recipients

7

Section 23AB of
the Income Tax Assessment Act
1936

8

Definitions and
signposts to related material

9

Repeal of
redundant reference to Papua New Guinea

10

Repeal of
redundant references to franking

11

Correction of
cross-reference in provision about dividend streaming
etc.

12

Minor changes to
provisions about concessional rebates

13

Fixing outdated
references to Medicare levy

14

Repeal of
references to previously repealed provision

15

Correction of
asterisking of reference to tax debts

16

Repeal of outdated
provisions about exemption from income tax

17

Correction of
asterisking of references to quarter

18

Inclusion of
Commissioner’s discretion to extend main residence exemption
from CGT

19

Nomination of
controllers of discretionary trust

20

Definitions mainly
relevant to Subdivision 165-F of the Income Tax Assessment Act
1997

21

Removal of
definition from imputation provisions

22

Correction of
outdated references to virtual PST assets

23

Repeal of spent
provisions about land transport facilities
borrowings

24

Prevention of
double counting for direct value shifts

25

Ineligible income
tax remission decisions

26

Correction of
references to chains of fixed trusts

27

Gender-specific
language

28

Misdescribed
amendments

29

References to
Schedules

30

References to
taxation laws

31

Other
amendments

5.6
More significant amendments include:

â¢
providing the Commissioner of Taxation (Commissioner) with a
discretion to extend the main residence exemption from CGT
(Part 18, comprising items 93 and 94). (This issue was
identified through TIES issue
0056-2009 ) ; and

â¢
allowing the nomination of controllers of discretionary trusts for
the purposes of the CGT small business concessions (Part 19,
comprising items 95 to 109). (This issue was identified
through TIES issue
0059-2009 ).

5.7
All of the amendments in this Schedule commence from the date of
Royal Assent unless otherwise stated.

426-5(ba) in Schedule 1
426-55 in Schedule 1 (paragraph (b) of the note)

426 -65(ba) and (bb) in Schedule 1 [Items 10 to
14]

Replaces the
current approval arrangements with provisions that allow the
Commissioner to endorse a fund as an approved worker entitlement
fund or an entity endorsed to operate the fund when satisfied that
it meets the legislative requirements without the need for the
Governor-General to make a regulation. The new arrangements
will apply from the day after this Bill receives Royal
Assent. Existing funds will be given a six-month period
to obtain an Australian Business Number. The Australian
Business Registrar will be required to enter a fund or entity as an
endorsed fund or entity on the Australian Business Register.
The Registrar will have 18 months from the commencement date to
make the changes to accommodate these
amendments.

Part 3 — Confidentiality of taxpayer
information

Table
5.3 : Part 3 — Confidentiality of
taxpayer information

Provision being
amended

What the amendment
does

Income Tax
Assessment Act 1936

6(1) [Items 15 to
17]

Repeals the
definitions of ‘Employment Department’ and
‘Employment Minister’ to reflect the fact that these
terms are now being defined in the ITAA 1997. The definition
of ‘Employment Secretary’ is also amended so that it
links into the appropriate ITAA 1997
definitions.

355-65(2) in
Schedule 1 (cell in item 4 in the table, column headed ‘The
record is made for or the disclosure is to ...’) [Item
21]

355-65(2) in Schedule 1 (cell in item 6 in the table, column headed
‘The record is made for or the disclosure is to
...’) [Items 22
and 24]

355-65(5) in
Schedule 1 (paragraph (b) of the cell in the table, column headed
‘and the record or disclosure ...’) [Item
23]

Supplements the
reference to ‘Education Secretary’ with a reference to
‘Employment Secretary’. This clarifies that
disclosure under this provision can be made to the
Education/Employment Secretary in each separate
capacity.

Supplements the reference to the ‘Families Secretary’
to include a reference to the ‘Chief Executive Officer of
Centrelink’. This recognises the reality that
disclosures made to the Family Assistance Office for the purpose of
administering family tax benefit payments are made to Centrelink
Officers. An amendment contingent on the Human Services Legislation Amendment Act
2011 is made to replace the reference of ‘Chief
Executive Officer of Centrelink’ with ‘Chief Executive
Centrelink’ (within the meaning of the Human Services (Centrelink) Act
1997 )’.

5.9
An employee share scheme provides employees with a financial
interest in the company they work for through the distribution of
shares in that company. Employee share schemes are
concessionally taxed to align the interests of employees with their
employer.

An employee
share trust is a trust which obtains employee share scheme
interests in a company, and provides them on behalf of employers to
employees of that company or their associates, or carries out
activities incidental to the holding and providing of employee
share scheme interests (for example, bookkeeping, passing on
dividends or opening and closing employee accounts). Use of
an employee share trust is a common feature of employee share
schemes, and provides a convenient mechanism for issuing shares
that may later be forfeited.

An employee
share trust should not have to include capital gains or losses made
when providing shares or rights to shares in the trust to a
beneficiary as a part of the operation of an employee share scheme
in their assessable income (subject to certain integrity
rules).

This is
appropriate because any gain is subsequently used to provide
remuneration to employees and taxing these would otherwise require
the provision of an additional deduction to employers to offset
that additional remuneration, which would unnecessarily increase
the complexity of the tax system. Further, without this rule,
the employee share trust may derive assessable income greater than
the deduction provided to the employer (who claims a deduction
equal to the amounts contributed value of the interest at the time
the employee share trust acquired it).

Capital gains
or losses are not disregarded if the employee share trust itself
makes a cash profit from the transaction.

Consistent
with the current law, the gains or losses will not be disregarded
if the employee acquires the share for more than its cost base in
the hands of the employee share trust. This is to ensure that
there are no untaxed capital gains in the trust which are not
embedded (and taxed) in the value of the right to the share to the
employee.

The omission
of this new provision at the time the employee share scheme reforms
were introduced was unintended. The change does not
disadvantage any taxpayer.

The amendment
applies from 1 July 2009, from when the reforms to employee share
schemes applied.

Ensures that
shares or rights acquired while an individual is undertaking
employment outside Australia prior to 1 July 2009, which would
have been qualifying shares or rights under the previous employee
share scheme rules, are transitioned to the new employee share
scheme rules, regardless of whether the period of employment that
relates to Australia is served after the old rules were
repealed.

Under the previous
employee share scheme rules, taxpayers who acquire employee shares
or rights while employed offshore, and then later become Australian
employees while still engaged in employment or service that is
relevant to the acquisition of the shares or rights, would have
been subject to the employee share scheme provisions at the point
of becoming an Australian employee.

Such taxpayers
(inbound taxpayers) would have either been assessed in the year of
becoming a relevant employee for the first time or at a cessation
time for qualifying shares or rights where the relevant election is
not made. If assessed in the year of income in which the
taxpayer becomes an employee in Australia, the discount will still
be valued as at acquisition.

Interests will be transitioned into the new
rules if:

â¢ the interest was
acquired before 1 July 2009;

â¢ at the pre-1 July
2009 time, the old employee share scheme rules did not apply in
relation to the interest because it was acquired while engaged in
foreign service, and the taxpayer in question was not yet an
employee;

â¢ after 1 July 2009,
the old rules would have applied in relation to the interest if
they were still in force, because the taxpayer in question became
an employee (within the meaning of the old rules);
and

â¢ at the time the
taxpayer became an employee, the cessation time under the previous
law would not yet have occurred.

Unlike taxpayers
who came to Australia pre-1 July 2009, the taxpayers to
whom this provision applies will not be able to make an election to
be taxed upfront in the year that they arrive in
Australia.

This provision
clarifies how the transitional rules apply to shares acquired
before 1 July 2009. The need for this transitional
provision was not identified prior to the passage of the principal
reforms.

The amendment
applies from 1 July 2009, consistent with the application of the
reforms to employee share schemes.

Income Tax
(Transitional Provisions) Act 1997

83A-15 (3) [Item
31]

Ensures that the
Commissioner can amend an income tax assessment at any time for the
purposes of taxing an employment benefit which becomes an
employee share scheme interest.

The employee share
scheme reforms introduced a new concept of ‘indeterminate
rights’.

Indeterminate
rights are rights to employment benefits acquired by employees
where at the time the right is acquired it may be unclear whether
the right will result in receipt of an employee share scheme
interest (for example, the employer has a discretion to provide
shares or cash) or it may be unclear how many employee share scheme
interests will be received. The new law provides that if a
right acquired before 1 July 2009 becomes a right to acquire a
beneficial interest in a share on or after 1 July 2009, the
previous rules are taken to have applied as if the right had always
been a right to acquire the beneficial interest in the
share.

Based on the
treatment of a right as an employee share scheme interest
from the time of acquisition, the taxing point for the right under
the employee share scheme rules may have occurred in an income year
before the nature of the right became clear.

If a taxpayer acquired a right prior to
1 July 2009, which only clearly became a right to acquire
a beneficial interest in a share in a company after 1 July 2009,
then that taxpayer will be assessable under the previous rules, in
an earlier year, where:

â¢
an election made under the former rules covers the right (the
election may have been made in an earlier year in respect of other
shares or rights acquired during the year or the Commissioner may
allow a later election to be made in relation to the indeterminate
right);

â¢
the indeterminate right did not meet the qualifying conditions
under the former rules; or

â¢
the indeterminate right is a qualifying right and a cessation event
(ceasing employment) occurs before 1 July 2009.

When the nature of
the right to an employment benefit as an employee share
scheme interest becomes clear, the Commissioner may amend an
employee’s income tax assessment for the income year in which
the taxing point for the employee share scheme interest occurred
(based on the treatment of the right as an employee share scheme
interest from the time of its acquisition). The Commissioner
can amend an assessment relating to an employee share scheme at
anytime, for the purposes of taxing an employment benefit which
becomes an employee share scheme interest.

The omission of
this transitional provision at the time the employee share scheme
reforms were introduced was an oversight. The explanatory
memorandum clearly explained that this outcome was
intended.

The amendment
applies from 1 July 2009, consistent with the application of the
reforms to employee share schemes.

Income Tax
(Transitional Provisions) Act 1997

Part 3-3 Division
125 section 125-75 [Item
32]

Ensures that all
employee share scheme shares or rights that would have been
disregarded from the CGT demerger ownership tests before the
commencement of the amending Act ( Tax Laws Amendment (2009 Budget Measures No. 2)
Act 2009 ) can continue to be
disregarded.

Division 125 of
the ITAA 1997 provides ‘CGT roll-over’ demerger
relief rules for certain company demerger events. Generally,
for the roll - over to be available, each owner’s
interest in the new demerged company has to be proportional to
their interest in the parent company.

Shares or rights
acquired under employee share schemes are often subject to unique
contractual arrangements that may make satisfying this proportional
ownership rule difficult. For instance, a particular scheme
might provide for the issue of shares in the employer in the future (with no
provisions to take account of possible
demergers).

Moreover, there is
no policy incentive to align the interests of parent company
employees with the interests of a demerged entity. For these
reasons, employee share scheme interests are generally disregarded
for these ownership tests.

Before 1 July
2009, the law provided that shares or rights acquired under an
employee share scheme were disregarded for the purposes of the CGT
demerger relief rules. Specifically, this carve-out applied
to ‘qualifying shares or rights’ acquired under the
previous employee share scheme tax provisions. Shares or
rights that would meet this test if not for being in a trust were
also disregarded.

The amending Act
repealed these provisions, and replaced them with updated
provisions reflecting new terminology. The amending Act
provided that shares or rights acquired under previous taxing
regimes, and over which tax was deferred to the 2009-10
income year or later, were transitioned into the new regime.
This meant that transitioned shares and rights were intentionally
carved out from the demerger ownership
tests.

However, shares or
rights acquired under previous tax regimes over which tax was
payable in a previous income year did not need to be
transitioned.

The previous
regimes continue to apply to these shares or rights, and the
carve-out does not capture them. This amendment ensures that
all employee share scheme shares or rights that would have been
disregarded from the CGT demerger ownership tests before the
commencement of the amending Act continue to be
disregarded.

The amendment
applies from 1 July 2009, consistent with the application of the
reforms to employee share schemes.

Amends the
specific listing of the following deductible gift recipients (DGRs)
listing to reflect a name change of the listed organisation from
the ‘College of Radiologists in Australasia’ to
‘The Royal Australian and New Zealand College of
Radiologists’.

Income Tax
Assessment Act 1997

30-20(2) (cell in
item 1.2.16 in the table headed ‘Fund, authority or
institution’)
30-65 (cell in item 7.2.4 in the table headed ‘Fund,
authority or institution’)

Deems the
following specifically listed DGRs, which are eligible for
endorsement under the general categories, to have been endorsed by
the Commissioner as DGRs under the general categories on the same
day as the specific listing is repealed, but does not prevent the
Commissioner from revoking that endorsement at a later
time:

â¢
Breast Cancer Network Australia; and

â¢
Indigenous Community Volunteers Limited.

Repeals and
updates the specific listings of the following DGRs where: the
organisations no longer exist for the purposes for which they were
listed; or the organisations were listed for a limited time and
that time has expired, or the organisations have ceased to exist,
or have merged with other DGR eligible
organisations:

â¢
Australian College of Occupational Medicine;

â¢
Australian Council for Children and Youth Organisations Inc;

â¢
Australian Games Uniform Company Limited;

â¢
Australian Postgraduate Federation in Medicine;

â¢
Australian National Travel Association;

â¢
Australian Red Cross Society—US 2005 Hurricane Relief
Appeal;

â¢
Australian Regional Council of Royal College of Obstetricians and
Gynaecologists;

â¢
Bowral Vietnam Memorial Walk Trust Incorporated;

â¢
Business Against Domestic Violence Reserve;

â¢
City of Onkaparinga Memorial Gardens Association Incorporated;

â¢
Commonwealth (for gifts made for the purposes of research in the
Australian Antarctic Territory);

â¢
Constitutional Centenary Foundation Incorporated;

â¢
Dunn and Lewis Youth Development Foundation Limited;

â¢
Foundation for Gambling Studies;

â¢
Industrial Design Council of Australia;

â¢
Nonprofit Australia Ltd;

â¢
Pearl Watson Foundation Limited;

â¢
Point Nepean Community Trust;

â¢
Productivity Promotion Council of Australia;

â¢
St Mary’s Cathedral Restoration Appeal Incorporated;

â¢
St Michael’s Church Restoration Fund;

â¢
St Paul’s Cathedral Restoration Fund;

â¢
The Finding Sydney Foundation;

â¢
The Salvation Army Hurricane Katrina Relief Appeal;

â¢
The Vietnam War Memorial of Victoria Incorporated; and

â¢
World Youth Day 2008 Trust.

All organisations affected have been consulted
and none have objected.

The specific listings of
‘Commonwealth’ enabled gifts for the purposes of
research in the Australian Antarctic Territory, but the
Commonwealth no longer accesses DGR support under that listing as
DGR support was established under other programs.

Amends the
specific listing of the following deductible gift recipients (DGRs)
listing to reflect a name change of the listed organisation from
the ‘College of Radiologists in Australasia’ to
‘The Royal Australian and New Zealand College of
Radiologists’.

Deems the
following specifically listed DGRs, which are eligible for
endorsement under the general categories, to have been endorsed by
the Commissioner as DGRs under the general categories on the same
day as the specific listing is repealed, but does not prevent the
Commissioner from revoking that endorsement at a later
time:

â¢
Breast Cancer Network Australia; and

â¢
Indigenous Community Volunteers Limited.

Repeals and
updates the specific listings of the following DGRs where: the
organisations no longer exist for the purposes for which they were
listed; or the organisations were listed for a limited time and
that time has expired, or the organisations have ceased to exist,
or have merged with other DGR eligible
organisations:

â¢
Australian College of Occupational Medicine;

â¢
Australian Council for Children and Youth Organisations Inc;

â¢
Australian Games Uniform Company Limited;

â¢
Australian Postgraduate Federation in Medicine;

â¢
Australian National Travel Association;

â¢
Australian Red Cross Society—US 2005 Hurricane Relief
Appeal;

â¢
Australian Regional Council of Royal College of Obstetricians and
Gynaecologists;

â¢
Bowral Vietnam Memorial Walk Trust Incorporated;

â¢
Business Against Domestic Violence Reserve;

â¢
City of Onkaparinga Memorial Gardens Association Incorporated;

â¢
Commonwealth (for gifts made for the purposes of research in the
Australian Antarctic Territory);

â¢
Constitutional Centenary Foundation Incorporated;

â¢
Dunn and Lewis Youth Development Foundation Limited;

â¢
Foundation for Gambling Studies;

â¢
Industrial Design Council of Australia;

â¢
Nonprofit Australia Ltd;

â¢
Pearl Watson Foundation Limited;

â¢
Point Nepean Community Trust;

â¢
Productivity Promotion Council of Australia;

â¢
St Mary’s Cathedral Restoration Appeal Incorporated;

â¢
St Michael’s Church Restoration Fund;

â¢
St Paul’s Cathedral Restoration Fund;

â¢
The Finding Sydney Foundation;

â¢
The Salvation Army Hurricane Katrina Relief Appeal;

â¢
The Vietnam War Memorial of Victoria Incorporated; and

â¢
World Youth Day 2008 Trust.

All organisations affected have been consulted
and none have objected.

The specific listings of
‘Commonwealth’ enabled gifts for the purposes of
research in the Australian Antarctic Territory, but the
Commonwealth no longer accesses DGR support under that listing as
DGR support was established under other programs.

Amends the
specific listing of the following deductible gift recipients (DGRs)
listing to reflect a name change of the listed organisation from
the ‘College of Radiologists in Australasia’ to
‘The Royal Australian and New Zealand College of
Radiologists’.

Part 10 — Repeal of redundant references
to franking

Modifies
paragraph 45C(3)(a) to replace a redundant reference to
‘a class C franking debit’ with a reference to ‘a
franking debit’. This amendment will apply from
1 July 2002, which is the time when class C franking debits
ceased to exist.

Repeals
subsections 45C(5) and 45C(6). Subsection 45C(5) is a
transitional rule that is no longer required. Subsection
45C(6) refers to definitions in Part IIIAA of the
ITAA 1936. Part IIIAA was previously removed as an
inoperative provision.

Under the
simplified imputation system, introduced from
1 July 2002, the way that companies keep franking
accounts changed from a taxed income basis to a tax paid
basis. This removed the requirement for companies to maintain
different classes of franking accounts. The amendments to
update the terminology in section 45C will have no adverse impact
on taxpayers as it confirms existing practice and removes
uncertainty.

Part 11 — Correction of cross-reference in
provision about dividend streaming etc.

Replaces an
incorrect reference in subsection 45D(2) to a determination
made under paragraph 45D(1)(b) with a reference to a determination
made under section 45A.

Paragraph
45D(1)(b) was removed when the demerger provisions were introduced
in 2002. However, a consequential amendment to update
subsection 45D(2) was overlooked. This amendment will not
have an adverse impact on taxpayers, as it confirms existing
practice and removes uncertainty. Therefore this amendment
applies to determinations made by the Commissioner on or after
24 October 2002.

Repeals outdated
provisions that covered exemptions from income tax. The
Phosphate Mining Company of Christmas Island Limited no longer
exists; the Australian Film Finance Corporation Pty Limited was
deregistered and subsumed into Screen Australia; and the
Commonwealth Games Federation entitlement to tax exemptions expired
on 1 July 2007. Therefore the provisions relating to these
are inoperative and are being repealed.

Part 17 — Correction of asterisking of
references to quarter

Table
5.19 : Part 17 — Correction of
asterisking of references to quarter

Section 118-150 of
the ITAA 1997 extends the CGT main residence exemption to allow a
taxpayer to treat land as their main residence for up to four years
if they build, repair or renovate a dwelling on the land that
subsequently becomes their main residence.

This amendment
gives the Commissioner discretion to extend this period where the
taxpayer does not build, repair or renovate a dwelling and
establish it as their main residence within four
years.

The Commissioner
would be expected to exercise the discretion in situations such as
the following:

â¢
When the taxpayer is unable to build, repair or renovate the
dwelling within this time period due to circumstances outside their
control. For example, the relevant builder becomes bankrupt
and is unable to complete the building, repairs or renovations.

â¢
When the taxpayer is unable to build, repair or renovate the
dwelling due to unforeseen circumstances arising during this
period. For example, the taxpayer or a family member has a
severe illness or injury.

â¢
When building, repairing or renovating the dwelling within the four
years would impose a severe financial burden on the taxpayer.
For example, the taxpayer would be required to incur an excessively
high level of debt relative to their income. Consequently,
the taxpayer may spend time accumulating sufficient savings
(relative to their income) to build, repair or renovate a
reasonable dwelling relative to their circumstances.

These examples are
not exhaustive.

This amendment
will apply in relation to CGT events happening on or after Royal
Assent.

Part 19 — Nomination of controllers of
discretionary trust

5.10
These amendments give effect to the suggestion made through
TIES issue
0059-2009 .

5.11
All references to legislative provisions in this Part are
references to the Income Tax
Assessment Act 1997 unless otherwise stated.

5.12
Section 152-42 currently allows a trustee of a discretionary trust
to nominate up to four beneficiaries of the trust as controllers of
the trust for an income year in which the trustee did not make a
distribution of income or capital and the trust had a tax loss or
no taxable income for that year.

5.13
The result of nominating a beneficiary to be a controller of a
discretionary trust is that the beneficiary and discretionary trust
are connected entities for the income year but only for the purpose
of applying the definition of ‘active asset’ in
subparagraph 152-40(1)(a)(iii) or
paragraph 152-40(1)(b).

5.14
This allows a capital gain made on a passively held CGT asset (that
is, an asset that is owned by one entity and used in the business
of an affiliate of, or an entity connected with, the asset-owning
entity) to qualify for the small business CGT concessions via the
maximum net asset value test where the asset is:

â¢
owned by a nominated beneficiary (or beneficiaries) or by an entity
connected with a nominated beneficiary; and

â¢
used or held ready for use in the discretionary trust’s
business.

5.15
However, where a beneficiary is a controller of a discretionary
trust only because of the nomination in section 152-42, this
does not make the beneficiary a controller of the trust for
calculating the maximum net asset value of the entity that owns the
asset.

5.16
Currently, section 152-42 does not apply to
paragraph 152-10(1A)(a), which is part of the provisions
that extend access to the small business CGT concessions via the
small business entity test to passively-held assets.

5.17
This means that an entity that does not carry on a business (other
than as a partner in partnership) and that is not connected with a
discretionary trust cannot access the small business CGT
concessions via the small business entity test for a capital gain
made on a CGT asset it owned that was used in the business of the
discretionary trust.

5.18
The amendments, which repeal section 152-42 with effect from Royal
Assent, introduce a new provision to allow a trustee of a
discretionary trust to nominate up to four beneficiaries of the
trust as controllers of the trust for an income year in which the
trustee did not make a distribution of income or capital and the
trust had a tax loss or no net income for that year. The
nomination must be in writing and signed by the trustee and by each
nominated beneficiary. The proposed provision relates to
‘net income’ rather than ‘taxable income’,
which is used in section 152-42. ‘Taxable income’
is technically incorrect because, under subsection 95(1) of the
ITAA 1936, a trust has net income rather than taxable income.
[Schedule 5, items 99, 102 and subitem 105(2),
sections 152-42 and 152-78 of the ITAA
1997]

5.19
The amendments also extend the scope of the nomination so that it
applies for the purposes of Subdivision 152-A and for
sections 328-110, 328-115 and 328-125 as they
relate to that Subdivision. [Schedule 5, item 102,
subsection 152-78(1) of the ITAA
1997]

5.20
Where the trustee has made a nomination under the new provision,
its extended scope allows an entity that does not carry on a
business (other than as a partner in partnership) whose asset is
used in the trust’s business to access the small business CGT
concessions via the small business entity test through the
operation of subsection 152-10(1A).

5.21
The extended scope of a nomination also means that it applies for
determining whether one entity is connected with another entity for
calculating the maximum net asset value of the entity that owned
the asset or the aggregated turnover of the discretionary trust
that used the asset in its business.

5.22
Various notes in the legislation have been changed and new notes
inserted to indicate the location and effect of the
amendments. [Schedule 5, items 91 to 98, 100,
103 and 104, paragraph 152-1-(1)(c)(note),
subsection 152-10(1A)(note 1), subsection 152-10(1A)(note 2),
section 152-15(note), section 152-15, subsections 152-20(2)
to (4), subsection 152-40(1)(note 2), subsections 152-40(4)
and (4A), 152-47(1) and 152-48(2), subsection 328-115(1)(note),
subsection 995-1(1)(note at the end of the definition of
‘connected with’) of the
ITAA 1997]

5.23
For access to the small business CGT concessions generally, the
amendments apply in relation to CGT events that happen on or after
the day this Bill receives Royal Assent. [Schedule 5, paragraph (a) of
subitem 105(1)]

5.24
For access to the small business CGT concessions via the small
business entity test only, the amendments also apply in relation to
CGT events that happen before the day this Bill receives Royal
Assent but after the start of the 2007-08 income year.
[Schedule 5, item 109, paragraph (b) of
subitem 105(1)]

5.25
The combination of the two application rules results in:

â¢
the amendments applying, for access to the concessions via the
small business entity test, in relation to CGT events that happen
in the 2007-08 income year and later income years (which
aligns with the date of effect of the amendments that extended
access to the concessions via the small business entity test to
passively held assets); and

â¢
taxpayers who accessed the concessions where a trustee made a
nomination under section 152-42 prior to Royal Assent not
being disadvantaged by the increased scope of the new nomination,
which includes determining whether one entity is connected with
another entity for calculating the maximum net asset value of the
entity that owned the relevant asset.

5.26
The retrospective component of the amendments will be beneficial to
discretionary trust beneficiaries who, following the trustee of the
trust making a nomination, will have the opportunity to access the
small business CGT concessions via the small business entity
test.

5.27
The small business CGT concessions require taxpayers to make
choices. For example, the small business retirement exemption
and small business roll-over are available only if the
taxpayer chooses to obtain them.

5.28
Subsection 103-25(1) limits the date for making a choice to
the day an entity lodges its income tax return for the income year
in which the relevant CGT event happened or a later date allowed by
the Commissioner.

5.29
Taxpayers who become eligible to make a choice under
Division 152 due to these amendments will have an extended
period, under a transitional rule, to make such a choice in
relation to CGT events happening before the day on which this Bill
receives Royal Assent. [Schedule 5, subitem 105(3 )]

5.30
The time limit for an entity to make the choice it is eligible to
make as a result of these amendments is the latest of:

â¢
the day the entity lodges its income tax return for the income year
in which the relevant CGT event happened;

â¢
12 months after the day this Bill receives Royal Assent; and

â¢
a later day allowed by the Commissioner.

[Schedule 5,
subitem 105(4)]

Part 20 — Definitions mainly relevant to
Subdivision 165-F of the Income
Tax Assessment Act 1997

Repeals
section 165-245 because the terms that were contained in that
section are now defined in either the ITAA 1997 or the
ITAA 1936 with cross references as required. Section
165-245 is replaced and a new rule to better explain the meaning of
‘holding fixed entitlements directly or indirectly when an
entity has fixed entitlement to income or capital of a
company’.

Replaces
outdated references in subsection 320-141(2) to
‘virtual PST assets’ with references to
‘complying superannuation/FHSA assets’. This
amendment applies on and after
26 June 2008.

The concept
of a ‘virtual PST asset’ was replaced with the concept
of a ‘complying superannuation/FHSA asset’ when the
first home savers account amendments were introduced in 2008.
The amendments to update the terminology in
subsection 320-141(2), which were sought by taxpayers
through the TIES system, will have no adverse impact on taxpayers
as they confirm existing practice and remove
uncertainty.

Part 23 — Repeal of spent provision about
land transport facilities borrowings

Repeals the
provisions that provided the basis for the land transport
facilities borrowings scheme. That scheme provided tax
offsets to resident financiers on interest received from eligible
land transport infrastructure borrowings provided that the borrower
agreed to forego the tax deductibility of that interest. The
scheme is no longer operative. Since 2004 no new projects
have been approved under the scheme and no projects currently
receive assistance under it.

In certain
circumstances, the direct value shifting rules could apply where an
amount is already included in the adjustable value (such as the
cost base or reduced cost base) of an up
interest.

This could happen
where, for example, a shareholder makes a payment to another
shareholder for an impairment of their share rights. This
expenditure could qualify for inclusion in the fourth element of
the cost base (and reduced cost base) of the paying
shareholder’s shares.

Providing that all
of the conditions under the direct value shifting rules are
satisfied, the payer shareholder would also be able to make an
adjustment to increase the cost base of their shares reflecting in
whole or part the increase in the market value of their
interest. This can duplicate the effect of the inclusion of
an amount in the fourth element of the cost base.

This amendment
will ensure that where an amount is included in the adjustable
value of an up interest, the value will not adjust the cost base of
the up interest under the direct value shifting
rules.

This amendment
applies in relation to schemes entered into on or after Royal
Assent.

95(1) (note at the
end of the definition of ‘net income’)
102D(1) (note at the end of the definition of ‘net
income’)
102M (note at the end of the definition of ‘net
income’)
102UC(4) (definition of ‘discretionary trust’)
102UC(4) (paragraphs (a), (d) and (e) of the definition of
‘excluded trust’)
102UC(4) (definition of ‘fixed entitlement’)
102UC(4) (definition of ‘indirectly’) [Items 376
to 382]